15 July 2015 by lberuti

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The session was fairly quiet and option expiry made sure iTraxx Main was pinned at 65bps for most of the day, even though the open positions were not that big. The consolidation phase is still under way, and credit traded sideways for most names. We highlighted previously how brutal the move had been from the widest levels, and credit indices have now come full circle and stand where they were at the beginning of June. But if curves duly steepened during the widening - as one would expect during a move which does not imply the end of the world -, they fail to flatten when the market came all the way back. Longer dated risk premia are as wide compared with 5 year risk premia as they have ever been this year. That is consistent with ever growing uncertainties about what the future keeps in store and corporates taking advantage of the extra low yield environment to issue 8 to 10y bonds. Nevertheless, people are beginning to question the steepness of the CDS curves, and they could consolidate a bit – but my guess is not much – in the coming sessions.